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Before Republicans start budget-slashing, take a lesson from Bolivia

The history of South American countries like Bolivia and Ecuador shows that abrupt austerity measures to pull back government subsidies equate with political suicide and civil unrest. America's budget-slashing Congress should take note.

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To the exasperation of the governments, an unknown but large quantity of this cheap subsidized fuel ends up on the black market of neighboring countries. And, to complicate matters further in Bolivia, since Morales expropriated the gas industry in 2005, Bolivia now finds itself in the awkward position of spending 2 percent of its GDP softening prices on its own best source of revenue.

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To complicate matters still more, the subsidies actually serve to empower groups that can topple a regime if it tries to alter the policy. The subsidies’ biggest fans are powerful working-class interest groups, namely farmers and taxi and bus drivers, who compensate for their small numbers with rigid organization and impressively coercive tactics. Busses can be parked across highways. Farmers can stop delivering food. No society can withstand such measures for long.

Make cuts with caution

In the parallel universe of late-1990s Ecuador, President Jamil Mahuad was eventually ousted in a coup in 2000, triggered in part over this issue of fuel subsidies. His successor, Gustavo Noboa, also tried to roll back the fuel subsidies, briefly, before finally abandoning the issue. Since then, any talk of changes to Ecuadorian fuel subsidies has remained off the table.

Bolivia doesn’t have the leisure, or, more accurately, the money, to leave the subsidies off the table. Still, yanking away the subsidies abruptly is political suicide, and it was surprising, if not downright bizarre, that Morales thought otherwise.

This December, Bolivian protests – this time from coca farmers, who employed the old vehicle-across-highway blockade maneuver – threatened to shut down the country. Morales, a former coca farmer himself, and a non-suit wearing populist with twice the folksy swagger of George W. Bush, was not about to let himself get painted as a cruel capitalist and advancer of IMF-type agendas, so he backed off.

Which is too bad for Bolivia. Unlike Ecuador, Bolivia can’t even pretend to afford the subsidies. Bolivia can’t afford much, actually. It’s the poorest country in South America. And it will remain deeply impoverished as long as so much of its revenue goes to pay for cheap taxi rides and hot showers, rather than schools, infrastructure, and medical care. What Morales should have done last month, and hopefully will do eventually, is begin the gradual process of stepping down the subsidies.

Likewise, the new US congress and incoming state legislators, facing a daunting mountain of debt, should proceed with caution. Republicans eager to hack their way to a balanced budget are going to find themselves on the less popular side of this issue if those cuts should move from talking points to reality. American voters were excited about the concept of reducing government spending, but that concept remained comfortably abstract during the election.

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Once Americans see their own local firefighters, police officers, and teachers being laid off, it's fair to say that their current love affair with austerity, and the politicians who champion it, will end abruptly.

Peter Mountford’s debut novel, A Young Man’s Guide to Late Capitalism, which is set in Bolivia, will be published by Houghton Mifflin Harcourt this April.


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